Making ‘getting what you pay for’ a reality in CRE outsourcing deals

Abstract

Perhaps no other topic creates as much apprehension between a buyer and a supplier as trying to negotiate a fair price for corporate real estate (CRE) services. The conventional procurement process puts buyers and sellers on opposite sides of the table until the parties ‘get to yes’. While a buying company and service provider often ‘get to yes’ and establish a business agreement, they will frequently face renegotiations. Buyers especially become frustrated — often blaming suppliers for not honouring their original price. Rather than being frustrated, buyers should look in the mirror and say: ‘Did I get what I paid for? And if not — why?’ The primary reason is that the process for establishing pricing between buyers and suppliers has historically been broken. How so? At the heart of the misalignment is that conventional sourcing business models usually result in the buyer company and their supplier establishing a ‘price’ that reflects the circumstances at a point when the business agreement is established. A ‘price’ is not responsive to changes in the scope of work, in the market, or in corporate strategy. In addition, many companies do not take the time to use more advanced sourcing business models and pricing mechanisms designed to keep a buyer and supplier relationship in equilibrium as ‘business happens’. In the October 2018 issue of the Corporate Real Estate Journal (CREJ) (Vol. 8, No. 2) we shared the fundamental tools practitioners can use for pricing a CRE deal. This paper goes a step further and provides a deep-dive into pricing and suggests the most appropriate way to establish fair pricing for each type of sourcing business model. We conclude with a call to action for practitioners to evaluate existing pricing models to ensure appropriateness for the business.